Introduction
The advancement in baking sector has had major impact on our lifestyle, spending habits and economy. Though the concept of loan ages back to the beginning of first formal trade system in history of mankind, today it is much more complicated and evolved. To fully utilize its benefits, one needs to have a good grasp on the intricacies of this system.
Know your ABC’s
In its crudest form loan is a type of debt that is agreed to be paid back by the borrower to the lender over a period of time in distributed installments. Taking into account the rate of inflation, i.e., a sustained increase in the general level of prices for goods and services, and profit of the lender, an interest is charged from the borrower. To pay loan final EMI (Equated Monthly Installment) is calculated by adding the interest amount to principal monthly installment. EMI gives you the exact amount you will be paying to the lender each month.
The lender decides what penalty is to be imposed in case the borrower defaults from payment.
How to calculate your EMI to pay loans
Most of the banks give a time frame to pay loans and leave it to the customer to decide the amount of time required to pay back the loan, knows as loan tenure, within that frame. If the loan tenure is more, EMI would be less but the interest would be charged for a higher period of time and you might end up paying a lot more than you wanted to. On the other hand, if the loan tenure is small, EMI is quite high and for some time you might have to bear a financial crunch but the good side is that you pay lesser and faster. Some loans offer an exemption from income tax. And you do not need to start paying immediately. There is a Loan Disbursal Time which is the period in which loan is processed and the customer receives the demand draft from the bank. The actual payments start only after loan is officially disbursed and sealed.
So to pay loan evaluate the maximum you can squeeze out from your monthly income and decide how long you want your pay loans tenure to be.
Types of Loan
There are four types of Loans- Secured, Unsecured, Demand and Subsidized.
A Secured loan is granted against some asset known as collateral. This asset serves as a backup for the bank in case borrower defaults or is unable to pay lone completely.
Unsecured loan is given without any collateral and in case of a default bank is authorized to file a lawsuit against customer. This type of loan is usually given on credit cards and the interest rates are much higher than the rest.
Demand loans are short term loans extending up to maximum 180 days and are atypical in that they do not have fixed dates for repayment and carry a floating interest rate which varies according to the prime rate.
Subsidized loans are applicable only when there is a tangible/intangible subsidy that can be taken into account. For example, education loans are granted against the assurance that the student will graduate and actual repayment will start only after graduation. Interest rates to pay loan are subsidized in these cases.
-
